Stocks mixed as Fed holds 2-day meeting

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NEW YORK -- Stocks traded mixed Wednesday as investors wrestled with a larger-than-expected drop in durable goods orders and awaited results of the Federal Reserve's two-day meeting on interest rates.

The Commerce Department reported that orders for durable goods plunged 2.8% last month, after increases in the previous three months. The stock market initially dropped sharply, but then pulled back up to trade mixed. Investors hope the U.S. economy rebounds from its recent slowdown, but they also don't want growth to be so strong that it warrants a rate hike by the Fed.

Investors wary of turbulence in the past few weeks due to soaring bond yields will be looking for any clues of policy makers' views on the economy in the central bank's statement Thursday, when it is expected to keep the benchmark rate steady at 5.25%.

The Fed has stated recently that it expects the economy will continue to recover from a weak first quarter despite difficulties in the housing market. However, inflation remains a paramount concern, and the policy statement will again most likely address that.

"We'd like to hear a Fed that's much closer to the center, because they're still pretty hawkish. They sound closer to tightening than to easing," said Arthur Hogan, chief market analyst at Jefferies & Co. Rate hikes tend to slow down business and can dampen corporate profits.

However, the market remained skittish, not only because of the looming Fed decision, but also due to concerns about subprime lending. Last week, Bear Stearns had to bail out a fund tied to subprime mortgage debt, and investors are wondering if other financial companies will see similar problems.

The Dow Jones industrial average fell 5.61, or 0.04%, to 13,332.05, after dropping about 80 points in earlier trading.

The dollar was mixed against other major currencies, while gold prices edged higher.

Crude-oil futures for August delivery rose 83 cents to $68.60 a barrel on the New York Mercantile Exchange after the Energy Department reported a surprise drop in U.S. gasoline inventories last week.

The stock market has been volatile in recent weeks as investors attempt to gauge the direction of interest rates and as they wait for the bulk of second-quarter earnings results to arrive in mid-July.

So far, earnings news has been mostly positive, indicating that corporate profit growth was solid in the second quarter.

Oracle rose 38 cents, or 2%, to $19.54, after saying late Tuesday that profit in the most recent quarter rose 23%, and that sales in the current quarter may rise more than expected.

ConAgra Foods Inc. on Wednesday reported a surge in its quarterly profit, despite the ongoing costs of recalling its Peter Pan peanut butter. The company, whose brands include Healthy Choice and Chef Boyardee, saw its stock rise 71 cents, or 2.8%, to $26.28.

Nike Inc. said late Tuesday growth in the U.S. and abroad, plus surprisingly strong future orders, pushed profit up 32% in the most recent quarter compared to the year-ago period. Nike rose $2.90, or 5.4%, to $56.72.

Though some investors are concerned that rising bond yields could translate to higher rates and dampen buyout activity, deal-making continued Wednesday.

Guitar Center Inc., the largest U.S. musical instrument retailer, said its board accepted a $1.9 billion cash buyout offer from a private equity firm. Guitar Center soared $9.44, or 19%, to $59.50.

Meanwhile, banking company People's United Financial Inc. agreed to buy the New England-based Chittenden Corp. for $1.9 billion in cash and stock. Chittenden rose $6.54, or 23%, to $35.78, while People's United Financial fell 85 cents, or 4.5%, to $18.86.